where the writers are
Who is to blame?
Our economy is sick and we are the bug that made it ill.

     I have watched the U.S. financial meltdown with a growing sense of dismay.  It is also interesting to follow the finger pointing that is inevitable in situations like this.  The Administration, Congress, greedy corporate executives have all come in for their share of blame.  And if truth be told, there is plenty of blame to go around.  Lax or missing regulation of the financial sector, laws that cater to special interests rather than take care of the national interest, and an obsession with short-term profits and quick bucks have, in my lay opinion, all contributed to this mess.


     There is, though, another actor in this tragic play who has not been remarked upon much by the media – the consumer.  Pundits talk about the burden being placed upon the American taxpayer by the situation, politicians cite constituent anger as a reason for voting against a bail out package, and the list goes on.  I ask you to consider this.  Since one of the prime engines of our current decline was the mortgage crisis, how and why did this happen, and who is to blame?


     I am no economist, but even to a layman, the proliferation of oddball mortgage schemes over the past several years was troubling.  People were being offered unusual mortgage loans in order to buy houses that they could not afford on their incomes.  Adjustable rates, interest-only, etc.  The balloon kept getting inflated until it burst.  When reality met their salaries, reality won.  In addition to all these people who felt entitled to “own” homes in a price range beyond their income’s ability to support, there were all the quick buck artists who used the easy mortgage money to buy and flip properties for easy and instant profit.  Again, the balloon could only hold so much air.  Now, just in case you haven’t figured it out, I’m talking about the consumers.  The people for whom, if not for their inability to delay gratification, the greedy corporate types were doing these things.


     It’s easy to say these consumers were bilked by greedy, unscrupulous financial execs, but the fact is, that most people who are scammed are victims of their own greed.  They are looking for “something for nothing” or for the minimum amount, and they often end up with empty wallets and destroyed credit ratings.  It reminds me of the old “Birmingham Bus Station Scam,” from the sixties (I call it that because that is the first place I saw it), in which a con man approaches the mark and says he has found a roll of money and wants the mark to hold it for safekeeping.  Now, there have been the kind souls who were hooked by this because they really wanted to help, but most of the victims were duped because they thought they were about to be given a wad of free money.  For those who are curious, the way it worked was, when you took your wallet out to show it to the con man, he would slip the wad of bills (usually a one or five dollar note combined with blank paper) into the wallet while, at the same time, removing your money.  He would then tell you to put your wallet back into your pocket quickly so as not to attract robbers or other dangerous types, offer to meet you somewhere later, and melt into the shadows, leaving you to discover later that you were suddenly poorer.  As a skeptical East Texan, I never expected to get something for nothing, so never fell for this scam, but I have watched it go down many times.


     That is in essence what the mortgage debacle was in my view.  Mortgage brokers offered a wad of bills (an expensive house) to a willing mark (buyers who want to scale up their residence ahead of their income). 


     I will have to leave it to the social scientists and psychologists to discover why this is the case, but I do have a personal theory.  Somewhere in the last several decades, we have become a nation of people who have an inflated sense of entitlement, and want instant gratification in all things.  We save too little, spend too much, and fail to take responsibility for our mistakes, expecting government to come in and save us from our own misdeeds.  That is not all of us, of course, but far too many.  While those of us who are children of people who lived through the 1929 Crash and subsequent depression were taught as children the value of saving, too many people in this country have been raised by parents who were reluctant to say no to them.  The result is that we have a large percentage of the population that has the inability to say NO to itself.  These are the people who live from paycheck to paycheck, running up huge credit card bills, and insist on getting what they want now, rather than wait until they can really afford it.  Their motto is “if it feels good, do it; if it looks good, buy it.’


     Americans have for the past several years spending themselves into unaffordable debt.  The real estate house of cards, with unrealistically inflated housing prices fooling many people into thinking they were wealthy, has collapsed.  Housing prices fueled by speculation did not, as many mistakenly thought, represent savings, putting our negative savings rate in stark perspective.  Like a person who stayed too late at the party and drank too much, we are now waking up with one lollapalooza of a hangover.  The difference is this one will not be cured by an aspirin or “the hair of the dog.” 


     I am something of an optimist, and feel confident that we will find a cure.  For me, it will be more of the same habits I have followed since my graduation from high school in 1962 – designate a percentage of my income for savings (in my case about 10 to 15 percent), pay all my bills and living expenses, and then if there is anything left, consider doing something nice for myself and my family.  This has often meant deferring that dream vacation for a year or two, but it has also meant that when I finally do it, I can really enjoy myself and not worry about the cost.  I don’t buy a new car every three years.  Instead, I buy a vehicle with durability, maintain it properly, and drive it for six to ten years.  And the list goes on.  I taught these habits to my children, and am happy to report that all are doing quite well.  No burdensome college loans to pay off, minimal credit card bills (in my son’s case, he uses a debit card which is the same as cash), and they drive the same car for four or more years.  As a family, unless there is a complete collapse of the national economic system, we will weather the current economic storm.  Many in this country will not be so fortunate.  I just hope everyone is paying attention, so that hopefully we can avoid a future repeat of this mess.

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Great essay, Charles.

Yes, this is exactly what happened.